This editorial first appeared in The Daily Progress on Sunday March 3, 2013. The full “Contradictory Consequences” white paper can be found at www.freeenterpriseforum.org under the reports tab. The Free Enterprise Forum is a privately funded public policy organization focused on local government in the Central Virginia region.
By. Neil Williamson, President, Free Enterprise Forum
There are times you have to say no to one thing because you said yes to something else. Such is the case with cash proffers.
If a community believes in citizen vetted comprehensive planning, preserving rural areas by densification of development areas and economic vitality, then such a community must say no to the fatally flawed cash proffer system.
In the recently released “Contradictory Consequences” white paper, the Free Enterprise Forum research and case studies explain the impacts of cash proffers. Sold to the public as a way to make growth pay for itself, the unintended negative economic and planning impacts have caused localities across the Commonwealth to repeal this “rezoning ransom” and replace these funds with more dependable and equitable infrastructure funding options. Today, rather than simply recalibrating their cash proffer calculation, as Albemarle County is doing, full repeal is a much more economically and ecologically sensible and sustainable alternative.
Cash proffers are per unit fees “voluntarily” extracted from applicants seeking to rezone their property. In theory, such “voluntary” proffers would be directly tied to the costs associated with the increased density of a rezoning. In reality, cash proffers lower land values, encourage development contrary to comprehensive plans, and create false hope for outside infrastructure funding.
Lower land values, lower property tax revenue – In concept, cash proffers are voluntary payments made by landowners to mitigate the impacts of changing the prescriptive zoning on their property. The concept works best when the rezoned value exceeds the increased cost of the proffer. Such a symbiotic relationship is difficult to achieve with automatic inflation increasing cash proffers and fickle housing markets not keeping pace.
||Single Family Detached $19,753Townhouse $13,432Multi Family $13,996
||No cash proffers
||$5,778 per unit
||$6,577 per unit
||$4,362 per unit
||No cash proffers
Basic economic theory indicates any increased cost must be paid by an entity that is a part of the transaction. Many believe the increased cost of a cash proffer will be borne by the end user, the new homebuyer. This can only occur in a housing market that has constant upward motion.
If, due to market conditions, the end user is not available to accept the cost of the cash proffer it is the land owner, whose land will be discounted by the increased entitlement costs that cash proffers create. In turn, such reduced land values reduce the locality’s real estate tax assessed value and revenue (absent an increase in the tax rate).
‘By Right’ Development Encouraged Charlottesville and Albemarle are currently updating their State mandated comprehensive plans. These community vetted plans suggest the manner in which the locality wishes to grow in the next twenty years.
In many, if not most, cases the zoning in a locality’s development area does not match the comprehensive plan designation. While the property owner does not have to agree to the comprehensive plan changes, they cannot act on those new designations until they have rezoned the property. Alternatively, if the land owner chooses to move forward with the existing, some might call “stale”, zoning, which likely does not agree with the locality’s comprehensive plan, they can do so immediately without paying any cash proffers.
In 2011, a developer acquired the rights to a project that included property in The City of Charlottesville and Albemarle County. Charlottesville does not have a cash proffer, while Albemarle’s exceeds $19,000 per single family home. After calculating the increased value of the land with the rezoning in each locality, the developer chose to rezone the property that was in the City (without cash proffers) and chose NOT to rezone the property in the county. This calculated decision was based on calculation of the cost (in money and time) of rezoning the County land exceeded the increase value.
Therefore, the land owner is incentivized to not to follow the community vetted comprehensive plan vision but instead to construct lower density, less thoughtfully designed developments. These projects are built to meet local building and zoning code but absent the enhancements and flexibility a rezoning might allow.
False Financial Hope – Forecasting cash proffer revenue is much like predicting snow in Central Virginia, localities do not know when it is coming, how much they are actually going to get or when it will stop. Cash proffers rarely, if ever, total the amounts localities are banking on.
In November 2012, the Albemarle County Board of Supervisors was presented a staff report outlining cash proffers that were in excess of $49.3 million dollars quite literally off the chart.
As one looks at this chart (right) and sees almost $50 Million dollars proffered, one might anticipate the cash proffer program is answering the very need it was designed but the Free Enterprise Forum estimates at least 28% of those proffers will never be collected as they are associated with the now defunct Biscuit Run Development.
It is interesting that while the State of Virginia acquired the property for a state park on December 31, 2009, Albemarle County continued to calculate those proffers as receivable in November 2012.
Rural Areas Jeopardized – According to the Piedmont Environmental Council, Albemarle County has in excess of 10,000 units already rezoned for residential development. Why have these not moved forward?
Have the embedded costs of development in Albemarle County, including cash proffers, created a cost burden the market is unable to bear?
If growth trends continue, won’t these embedded costs push residential development out of Albemarle County’s designated growth areas and into the rural areas?
The reality is that cash proffers contribute to the paradigm that rural residential development remains the least expensive, most profitable development option in Albemarle County.
If the cash proffers are pushing development into the rural areas and surrounding localities, what are the community costs of increased traffic, more costly government services delivery, as well as loss of ecologically contributing farmland, and productivity?
Cash proffers have produced a plethora of Contradictory Consequences without achieving significant benefit. Now is the time to repeal this rezoning ransom and replace it with a more sensible and equitable alternative.
Neil Williamson is the President of the Free Enterprise Forum, a local government public policy organization located in Charlottesville. The full Contradictory Consequences report can be found at www.freeenterpriseforum.org